2021 Looks to Be Another Bleak Year for Business

A new Dun & Bradstreet report indicates that one of five businesses is at risk of closure ■ If the pandemic isn’t brought under control halfway through 2021, the forecast could get even worse

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Shuttered storefronts on a main street in Jerusalem, July 26, 2020.
Shuttered storefronts on a main street in Jerusalem, July 26, 2020.Credit: Eyal Toueg

The worst is not yet behind us: The coronavirus crisis and how it was managed will continue costing Israel over the long term, according to a new report by Dun and Bradstreet on behalf of TheMarker. The economy will continue contracting in 2021 too, accompanied by mass business closures and an increase in the number of businesses at risk, the report states.

This will hurt primarily small and new businesses, and those that delayed repaying bank debt.

Haaretz Podcast: Why is Israel arming Azerbaijan against Armenia? Listen to Yossi MelmanCredit: Haaretz

The year 2021 will be the second one in a row with negative GDP growth for Israel after a decade of steady GDP increases. The number of businesses in the country is likely to contract by some 15,000-20,000 – some 40,000-45,000 businesses are forecast to open, versus 75,000-80,000 businesses closing.

The pace of business closures in 2021 is forecast to be less than that in 2020, but still 25% beyond that of 2019 and the preceding years, when a net 10,000-15,000 joined the economy (after subtracting business closures).

If the pandemic isn’t brought under control halfway through 2021, then the forecast will be even more pessimistic.

A business chance’s for closing will likely increase, from 7.5% in 2019 to 13% this year and 10% in 2021.

Dun and Bradstreet noted that its new forecast for 2021 is less pessimistic than the one published in July. In part this is because the Bank of Israel boosted its support for the economy by publishing a framework to enable borrowers to continue to postpone paying off debts, and a government plan promising grants to businesses through June 2021. However, many businesses that did not close in 2020 are likely to go under in 2021.

Efrat Segev, VP-Data and Analysis at Dun and BradstreetCredit: Niv Kantor

“The postponement of loan payments by borrowers pushes off the likelihood that the business will close until the new date the loan is due,” stated Efrat Segev, VP-Data and Analysis at D&B. “The support is a sort of artificial respiration for some businesses, that under normal circumstances, based only on their business operations, would have been likely to close.”

One in five businesses in the country is at high risk of closure, and this is likely to be true through the first half of 2021, she said.

Most businesses that close are likely to be small ones or new ones, which are typically at high risk in any case, as well as businesses that postponed repaying bank loans but didn’t see their revenues improve in the interim. Businesses that entered the crisis highly leveraged, and in fields that were badly impacted by the virus and the restrictions in place to control it, are also at higher risk.

“The main reason that fewer businesses opened in 2020 is the uncertainty in the country,” said Segev. “Business owners are having trouble making decisions when there’s no certainty regarding forecast income and they’re likely to have trouble managing their revenue stream,” she stated. Likewise, the high rate of unemployment has reduced the public’s purchasing power, making it less worthwhile to go into business. Businesses are also frequently opened based on savings and loans, but the public’s savings have been hit by the crisis, and financing is more limited, she noted.

Businesses opening right now are likely to be those that are suited to lockdowns, such as online commerce, deliveries, training and home cooking.

Dun and Bradstreet found that between March and September, the number of checks that bounced in Israel increased by 20%. Likewise, the number of restricted bank accounts increased by 4%. The latter figure would have been worse if the Bank of Israel hadn’t ordered banks not to penalize account owners for bouncing checks, said Segev.

These figures reflect the increased risk of doing business in Israel, she said.

Not all businesses are losing. Some are doing quite well as a result of the pandemic. Grocery stores, food makers and food importers saw their risk decrease by 10%, as the public – stuck at home –began purchasing more food. Israel’s high-tech industry is also still growing and exporting, and it too saw a decrease of 10% in its risk.

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